CFC Invalidates GILTI Gap-Filling Regulation That Avoided Textual Statute Inconsistency (7/7/26)

In Keysight Technologies, Inc. v. United States, ___ Fed.Cl. ___ (7/2/26), the Court held invalid a Treasury Regulation designed to plug a gap in the statutory text. The opinion may be found: CFC here, TN here, GS here.

The Court opens with this sentence projecting the outcome (Slip Op. 1):

When Chevron fell, so too did the presumption that statutory ambiguity favors the agency. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).

If that were not clear enough as to where it is going, the Court opens the next paragraph (bold face supplied by JAT):

This controversy relates to the Treasury’s self-inflicted fix of a mismatch between foreign subsidiaries with fiscal- or calendar-year tax filing requirements that Congress quietly built into the global intangible low-taxed income ("GILTI") statutory scheme.

And the next paragraph (bold face supplied by JAT):

The Treasury’s antipathy for this inconsistency resulted in the Secretary promulgating Regulation 1.951A-2(c)(5) ("the Regulation").

I won’t parse the quoted text any further (although my bold face may imply something).

The technical issue was whether Treasury could, by interpretive regulation, fix what appears textually to be a timing glitch producing materially different tax result based on differences in tax years between calendar year taxpayers and fiscal year taxpayers. As the Court says (Slip Op. 2): “Enactment of the TCJA created an inconsistency between treatment of certain taxpayers depending on whether they were fiscal-year or calendar-year filers.”

Basically, the taxpayer argued that it, as a fiscal year taxpayer, was entitled to a benefit that a calendar year taxpayer could not achieve. Without wallowing around in the details, it appears to me that an intuitive view of how Congress enacts tax legislation, one can fairly infer that Congress did not intend the result that the regulation sought to forbid and the Court blesses. Congress appears to have had no specifically articulated intent on the precise issue, but Congress generally does not make such distinctions to permit disparities between otherwise similarly situated taxpayers.

DC Circuit Interprets the § 751 Inventory Exception to Achieve a Result Congress Cannot Have Intended (7/29/24)

In Rawat v. Commissioner, 108 F.4th 891 (D.C. Cir. 2024), DCCir here and GS here, the Court held that the portion of a foreign person’s gain from sale of a partnership interest attributable to partnership inventory taxed under § 751 as other than capital gain is not U.S. sourced and therefore not subject to U.S. tax. The opinion really has nothing to do with tax procedure, except on the picky point that I note at the end of this blog.

As I see the issue (perhaps not from the same literalist reading of the statutes as the Court but as a high level overview of what I think Congress was trying to do), the purpose of recharacterizing what would be capital gain into ordinary income for the underlying appreciated inventory in the partnership is to give the partner treatment as if the partnership had sold the inventory, realized the gain, and allocated it to the foreign partner for U.S. tax. Judge Gustafson in the Tax Court reached that result well within the constraints of the language in the Code. See Rawat v. Commissioner, T.C. Memo. 2023-14 , here. Only by fixating on certain text does the D.C. Circuit panel avoid that result. The whole purpose of all judicial interpretive methodologies is to be the faithful agents interpreting the will or intent of Congress. Foregoing U.S. tax on the gain attributable to inventory certainly was not the intent of Congress.

I post on this case because it seems to me to be of the same genre of resolution as Gitlitz v. Commissioner, 531 U.S. 206 (2001), here, Justice Thomas' infamous literalist / textualist opinion oblivious to the overall design of the Code. I discuss in general terms the interpretive methodologies in the Federal Tax Procedure Book 2024 versions (Student Ed. at pp. 6-11) and (Practitioner Ed. at pp. 8-17). Specifically, in another part of the book (Practitioner Ed.  at p. 109 n. 505), I discuss Gitlitz as follows in a footnote regarding the chaos some Supreme Court opinions:

   n505Charles I. Kingson, How Tax Thinks, 37 Suffolk U. L. Rev. 1031 (2004) (critiquing two leading Supreme Court cases: Frank Lyon Co. v. United States, 435 U.S. 561 (1978) and Commissioner v. Brown, 380 U.S. 563 (1965)); see also Charles I. Kingson, Confusion Over Tax Ownership, 93 Tax Notes 409 (Oct. 8, 2001) (critiquing the same). I also cite Gitlitz v. Commissioner, 531 U.S. 206 (2001) as a prime example of Supreme Court’s mischief in this area. See René Matteotti, Struggling With Words in Tax Jurisprudence -- A Plea for an Equal Treatment Mode of Analysis in Construing Tax Statutes, 2005 TNT 130-30. My quip, not much of an overstatement, is that tax cases are too important to let the Supreme Court decide them.

Baude NYT Opinion Piece on Originalism and My Questions (7/10/20; 7/13/20)

I alert readers to William Baude's excellent opinion piece in NYT yesterday:  Conservatives, Don’t Give Up on Your Principles or the Supreme Court (NYT 7/9/20), here.  For persons interested in constitutional interpretation (and the subset of statutory interpretation, both being interpretations of law), I recommend the article.  Baude, here, is a professor at the University of Chicago Law School.  I have cited Baude frequently on this blog.  See here.

I was going to leave a comment on the NYT page addressed to Professor Baude (although not expecting him to respond to a comment on the News page but hoping to draw responses from others).  But, alas, I could not figure out how to leave a comment.  So, I will post here my intended comment to the opinion piece in the hope that any of the readers here might want to comment either on this blog page or by email to me at jack@tjtaxlaw.com.

The comment is:

I address this question to Professor Baude (who is probably too busy to respond) but encourage anyone else having ideas on my comments to weigh in. 

Professor Baude, 

I read your NYT op-ed today with great interest, since I became interested in statutory (and, by extension,  constitutional) interpretation incident to teaching tax procedure at the University of Houston law school.  I have read a lot of your work and find it generally excellent, even when I do not necessarily agree with it.  Always worth considering.  So thank you for your continuing offerings on this subject. 

You say good things about originalism.  I am curious about what brand of originalism you find most attractive.  For constitutional interpretation, my sense is that most originalists claim that they search for the "original public meaning." Original public meaning is not what the drafters meant by the text drafted and approved but what some mythical contemporaneous public person not involved in the legislative process would have interpreted the words to mean.  Jed Rakove tongue in cheek says that might be Joe the Ploughman.

Textualism's Malleability -- Picking Your Friends (6/24/20)

Yesterday, in a Zoom session with a Houston tax group, the Wednesday Tax Forum (which meets on Tuesday), George Connelly, here, discussed § 6751(b), here, which requires supervisor approval before the initial determination of IRS penalty claims.  Since the IRS frequently asserts penalties, this requirement has been a frequent topic in litigation, at least after it surfaced a few years ago.  Basically, the ground covered by § 6751(b) has shifted dramatically and the aftershocks continue to alter the understanding of the requirement, now in more nuanced ways than before.

I do not plan to discuss § 6751(b) in this blog. For those interested in more on § 6751(b), George’s article, titled I.R.C. Section 6751(b) – What You Need to Know, may be viewed and downloaded here.

I do want to address one of the issues that I raised in the Zoom session – that is how the Tax Court which, like other courts, has moved into or at least toward the textualist camp for statutory interpretation (see Jonathan H. Choi, An Empirical Study of Statutory Interpretation in Tax Law, 95 N.Y.U. Law Rev. 363 (2020), here), abandons textualism for § 6751(b) because the text is nonsense, and applies a purposivist reading to get to the result they think Congress must have intended (whether Congress actually intended the result or not).  (There’s that notion, purportedly anathema to textualists, that Congress’ intent, real or imagined, means anything.)

In my prior prior posting, Supreme Court Case on Statutory Interpretation (Federal Tax Procedure Blog 6/16/20), here, I discussed the theme of textualism in Bostock v. Clayton County, 590 U.S. ___, ___ S.Ct. ___ (6/16/20), here.

I just read a more robust discussion of Bostock’s themes of textualism.  Anita S. Krishnakumar, Three Lessons About Textualism from the Title VII Case, by Anita S. Krishnakumar (Notice & Comment 6/24/20), here.  In the article, Professor Krishnakumar (bio here) discusses three key topics / lessons from Bostock that are counter to the oft-repeated claims of textualism:

1. Textualism does not necessarily lead to a single correct reading of a statute.
2. Textualists care about practical consequences and other extratextual considerations.
3. Textualism often involves some speculation about legislative intent or purpose.

Professor Krishknakumar concludes:

In the end, the Court’s trio of textualist opinions in Bostock have much to teach us about what textualism means on the modern Court. And while textualists can certainly celebrate that all three opinions “flew a textualist flag” as Justice Alito put it, they also should take note that textual analysis did not produce a single clear-cut reading of the statute—and that all three opinions took into account extratextual considerations as well.

Which is to say that, well, textualism is malleable.  In that sense, could it be that textualism suffers the same argument against that textualists (at least some of them) assert for legislative history:  It is like "looking over a crowd and picking out your friends."  See Brett M. Kavanaugh, Book Review: Fixing Statutory Interpretation, 119 Harv. L. Rev. 2118, 2149 (2016), here (in fn. 157, citing "Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (quoting Patricia M. Wald, Some Observations on the Use of Legislative History in the 1981 Supreme Court Term, 68 IOWA L. REV. 195, 214 (1983), in turn borrowing Judge Leventhal's 'memorable phrase'").  Indeed, reading through Bostock, somehow, one might get the Humpty-Dumptian feeling that, with competing dictionaries and definitions, a word " means just what I choose it to mean—neither more nor less."  That is the textualist notion even when textualists reach different definitions.

Article On Justice Scalia's Modest Success and/or Failure to Persuade Other Judges to Reject Legislative History in Statutory Interpretation (5/16/20)

Readers of this blog may be interested in a recent Draft of a Law Review article recently posted to SSRN.  Stuart Minor Benjamin and Kristen Renberg, The Paradoxical Impact of Scalia's Campaign Against Legislative History 157 (SSRN 2020), for publication in Cornell Law Review, Vol. 105, No. 4, 2020, here; see also the SSRN Abstract, here,; and a summary of the article in Stuart Benjamin, In His Advocacy Against Legislative History, Did Scalia Get Half a Loaf, or None at All? (The Volokh Conspiracy 5/15/20), here.

Here is the SSRN Abstract:

Beginning in 1985, Judge and then Justice Antonin Scalia advocated forcefully against the use of legislative history in statutory interpretation. Justice Scalia’s position, in line with his textualism, was that legislative history was irrelevant and judges should not invoke it. Reactions to his attacks among Justices and prominent circuit judges had an ideological quality, with greater support from ideological conservatives. In this Article, we consider the role that political party and timing of judicial nomination played in circuit judges’ use of legislative history. Specifically, we hypothesize that Republican circuit judges were more likely to respond to the attacks on legislative history than their Democratic counterparts, and that judges who joined the bench during or after these attacks were more likely to be influenced than their counterparts who were appointed before the attacks. Utilizing a dataset containing all published federal appellate court majority opinions between 1965 and 2011 (more than 240,000 opinions), we find that, for both hypotheses, the judges whom we would expect to be more influenced by the attacks on legislative history were in fact less likely than their counterparts to cite statements from floor debates or committee hearings, traditionally regarded as among the least reliable forms of legislative history. But they were more likely than their counterparts to cite committee reports, traditionally regarded as the most reliable form of legislative history. The attacks on legislative history thus seem to have had the effect of pushing judges who might be expected to be influenced to (re)examine their treatment of legislative history but not (as Scalia had advocated) to ignore it. Instead, they adopted what had been the consensus approach for most of the twentieth century. Scalia influenced, but he did not persuade.

And here is the Conclusion from the Article (pp. 158-159, footnotes omitted):

On Statutory Interpretation - Textualism / Originalism (10/11/19; 10/16/19)

Just this week, I was working on the issue of “original public meaning” to update my Federal Tax Procedure Book and earlier article that needs refreshing (soon) for posting on SSRN.  Original public meaning is a strategy for interpreting text – constitutional and statutory.  (I suppose, also, since it is text interpretation, we might apply it to religious texts, like the Bible, but that is a related but different subject.)

Just this week, the Supreme Court held oral arguments in Bostock v. Clayton County and Harris Funeral Homes v. EEOC (see SCOTUSBlog summary here).  The issue is whether Title VII of the Civil Rights Act of 1964, which bars employment discrimination “against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin,” bars sex discrimination based on sexual orientation (Bostock), or on transgender status (Harris).  The issue is one of statutory interpretation of the word sex in the statute.  What does sex mean?  (I suppose it is not like pornography, difficult to define but we know it when we see it.)  Does the statutory text mean what sex meant in the statutory context in 1964 or can its meaning evolve as the context for its application changes?  (One variant of the question involving textual interpretation, although not a Constitution or statute, is the Declaration of Independence declaring that "all men are created equal"; do we interpret that as the signers of the declaration or the public at the time would have interpreted it (it does not include blacks whether free or slave and likely not women as well) or in light of developed reason (really, all men and women are created equal).)

The general category of statutory interpretation that looks to the text and context as interpreted upon enactment (1964) for meaning is called “originalism.”  Originalism itself can break down into categories, including original public meaning.

So, I thought I would offer first my revisions to the Federal Tax Procedure discussion (keep in mind that these revisions will appear in the 2020 edition, and are likely to be further revised before formal publication).  In the text of this blog I offer just the text without the footnotes.  The text with the footnotes can be downloaded here (note I have revised this offering as of 10/16/19 to correct a reference in one of the footnotes from Judge Higginbotham to Judge Ho; note also that I have made some small changes since originally posted on 10/11/19).  I discuss originalism under the heading textualism (which I generally contrast to purposivism) because conservative textualists tend to fall in the originalist camp; I offer the whole section on statutory interpretation (which is an 10/16/19 expansion of the text originally covered on 10/11/19).

(2) Approaches to Statutory Interpretation. 

(a) Introduction. 

There are two broad categories of statutory interpretation encountered frequently in tax practice (as well as other areas of law).  They are: (i) textualism and (ii) purposivism.  I only introduce the general concepts and note their outer parameters.  These approaches play out in constitutional interpretation and in statutory interpretation. 

Before moving to these categories of statutory interpretation, I want just to offer a broad high level view of the process.  All theories of statutory interpretation, I think, are based on the notion that courts, in interpreting the statutes, are the faithful agents of Congress which enacted the statutes.  Although some view the faithful agent of Congress claim as facile in the hard context of statutory interpretation, it is still, I think, fair to say that, since Congress rather than the courts legislate, Congress is the one through the statutory text that says what the law is despite Justice Marshall’s famous sound bite in Marbury v. Madison, 5 U.S. 137 (1803) that the courts “say what the law is.”  Congress says what the law is, and Courts are supposed to say what Congress legislated.  So I think that faithful agency to the law Congress enacted is the heart of statutory interpretation.  The “faithful agency” claim may be more persistent with textualists, but in my view the claim is not more persuasive with textualism.  Perhaps a subtle nuance on the faithful agency is that, it is at least the strong starting point, although it must be filtered through controlling or persuasive interpretations after enactment. 

(b) Textualism. 

Textualism is an interpretive strategy that focuses principally or even exclusively on the statutory text enacted by Congress.  Justice Scalia was perhaps the most vocal advocate.  Focusing on the statutory text, the goal for textualists is to determine and apply the “original meaning” (sometimes called the “original public meaning”) at the time of adoption or enactment. subject perhaps only to the use of linguistic canons of interpretation.  With the rising prominence of Justice Scalia’s proclaimed textual brand of textualism, even Justice Kagan has proclaimed that “we’re all textualists now.” 

Justice Kavanaugh in the Federal Tax Procedure Book (10/6/18)

I thought in view of the elevation of Judge Brett Kavanaugh to Justice of the Supreme Court, I would include some of my many citations to him in the Federal Tax Procedure book.  The following are from the working draft for the 2019 editions (Student and Practitioner) which may be somewhat different from the 2018 editions.

[On Calling Balls and Strikes]

Consider Justice Roberts' famous statement in his confirmation hearings that “Judges are like umpires. Umpires don’t make the rules, they apply them;” his job, he proclaimed, as a judge and prospective Supreme Court Justice was to call “balls and strikes.” Continuing the baseball metaphor, however, a leading jurist, Justice Brett Kavanaugh, says:

[T]he current situation in statutory interpretation, as I see it, is more akin to a situation where umpires can, at least on some pitches, largely define their own strike zones. My solution is to define the strike zone in advance much more precisely so that each umpire is operating within the same guidelines. If we do that, we will need to worry less about who the umpire is when the next pitch is thrown.” fn

fn Brett M. Kavanaugh, Book Review: Fixing Statutory Interpretation, 119 Harv. L. Rev. 2118, 2121 (2016).

* * * *

[Kavanaugh on Justice Scalia's impact on statutory interpretation]

Justice Scalia’s impact on statutory interpretation by focus on the text of the statute, to the exclusion of external sources, has been described as effecting a “a massive and enduring change in American law.” Brett M. Kavanaugh, Fixing Statutory Interpretation, 129 Harv. L. Rev. 2118 (2016) (the article is a book review of Robert Katzmann, Judging Statutes (Oxford Univ. Press 2014) (which advocates a broader approach to interpretation, including specific use of legislative history); Justice Kavanaugh strongly defends Scalia’s approach to statutory interpretation).

* * * *

[Discussing textualism and its constitutional counterpart "orginalism"; this is in a footnote]